Analyst: Pharma Profit Will Fall on Patent Losses

NEW YORK_Pharmaceutical companies relying on blockbuster drugs to
fuel their profits could suffer more damage from generic
competition in the next several years than Wall Street expects, a
Bernstein Research analyst says.

In a report released Tuesday, Bernstein analyst Dr. Tim Anderson
said AstraZeneca, Eli Lilly & Co. and Bristol-Myers Squibb Co.
are among drug developers most vulnerable to the loss of key
patents in the next five years. The pharmaceutical industry in
large part is facing a "patent cliff," or the loss of key patents
on revenue-driving drugs, opening the door for competition from
cheaper generics.

Key drugs, such as Bristol-Myers' blood-thinner Plavix, make up a
large percent of their respective companies' profit margins,
Anderson said. Companies rarely disclose the profitability of a
specific drug, making it difficult to model the full impact of a
sales decline to a company's bottom-line, he added.

"Our work yields a very important finding: just how much a small
collection of major brands can fund the operations of the rest of
the company, and how they enable things like the heavy investment
in research and development, and other expensive endeavors," he
said. "What, then, will happen as these sources of funding dry
up?"

He said roughly 30 of the 52 drugs modeled have pretax margins that
are 70 percent or higher. Many of the products are above 80 percent
and a few products approach 90 percent.

Sales of Plavix are expected to fall off after patents start to
expire in 2011. Anderson expects the drug's contribution to pre-tax
income to dive to $156 million in 2015 from $2.93 billion in
2009.

Eli Lilly's anti-psychotic medication Zyprexa is estimated to
contribute $518 million to pretax income in 2015, down from $3.81
billion in 2009.

Pfizer Inc. and Merck & Co. face similar declines with the
cholesterol drug Lipitor and allergy drug Singulair, respectively.
But, those companies have helped offset the overall impact to
profit by pursuing large acquisitions, he said. Those deals both
added to the existing portfolio of products and gave a boost to
research and development potential.

Other potential solutions for the industry include investing in new
drugs, while cutting costs in sales forces and infrastructure, he
said.